If predictions of Peter Smith, the CEO of a leading cryptocurrencies exchange, Blockchain.info are anything to go by then 2018 may be the year central banks the world over will hold digital currencies for the first time. Smith said, “I think this year will be the first year we will see central banks begin holding digital currencies as part of their balance sheet.”
In a pronouncement made on Monday, December 17, 2017, Smith said central banks will consider buying Ethereum and Bitcoin and make these two digital assets part of the reserves they hold. This will likely increase the diversity of reserves that can cushion banks against market shocks. Right now, foreign currency reserves and gold remain the commonly-used cushions.
Other Industry Leads Are of a Similar Opinion
Similar sentiments are held by Eugene Etsebeth who served as an executive of the South African Reserve Bank. In an opinion piece he penned for Coindesk, a leading Blockchain and cryptocurrency-related online publication, Etsebeth said “Though central banks of the seven biggest economies are only concerned about the rightful regulations of cryptocurrencies, for now, 2018 will change the landscape when the countries chief banks start buying cryptocurrencies to bolster the foreign reserves they hold.”
Etsebeth predicted that G7 central banks will witness the rise of Ethereum and Bitcoin among other major Blockchain-backed cryptocurrencies to become the biggest international currencies by market cap. He added that “Such an event, the 24/7 trading access and the global nature of these currencies will make it natural to own them and will turn the coins into de-facto investment and the preferred investment tranche that central banks will hold.”
But, Why 2018?
The predictions by both Smith and Etsebeth are hinged on tipping points that are imminent in the coming year. Firstly, the G7 central banks are likely to give Bitcoin and a few other major altcoins a keen look when their market capitalization surpasses the collective value of all special drawing rights (SDR) allocated to all members. Currently, the amount stands at about $300 billion, an amount that the market cap of Bitcoin may equal and even surpass in 2018.
Secondly, the realization that the value of the Dollar, Pound Sterling and other currencies of the G7 are indeed devaluing against the major cryptocurrencies may present another tipping point. This is likely to force the respective banks to change the composition of their foreign reserve weighting and possibly include a varied number of cryptocurrencies.
How Will This Happen?
The glaring evidence of the systematic weakness of the dollar and its fiat peers will probably lead to emergency meetings among senior central bank executives with a view of working on the modalities of shifting from the conventional investment policies that regulate the management of reserves. Such a move will likely see the addition of major cryptocurrencies into the list of eligible currencies and securities.
It is also possible the paradigm shift will see central banks issuing their in-house digital assets. This is bolstered by the fact that certain central banks already are exploring avenues of developing their own crypto coins.